MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion together with our financial statements
and the related notes included elsewhere in this Quarterly Report on Form 10-Q.
This discussion contains forward-looking statements that are based on our
current expectations, estimates and projections about our business and
operations. Our actual results may differ materially from those currently
anticipated and expressed in such forward-looking statements as a result of a
number of factors, including those which we discuss under “Risk Factors” and
elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are a clinical stage biotechnology company engaged in the discovery,
development and commercialization of therapies targeting cancer. Our initial
disease target is lung cancer, a serious medical condition with an incidence of
over 235,000 new cases in the US in 2021, representing 12.4% of all cancers, and
over 131,000 deaths, or 21.7% of all cancers. Worldwide, lung cancer incidence
is over 2,200,000 per year (ranking second only after breast cancer), and
mortality over 1,800,000 (ranking first). Specifically, we are targeting
Non-Small Cell
We accomplished the following key milestones:
•
InNovember 2018 , we in-licensed THIO fromUniversity of Texas Southwestern , inDallas . The patent license is global and exclusive for the duration of the patients' lives. • In 2019, we completed a common stock seed round in the amount of$2 million . • In 2019, we generated the first data for THIO demonstrating complete regression with no recurrence when administered in advance of atezolizumab (TecentriQ®;Genentech ), in colorectal and lung cancer preclinical models. • In the First Quarter 2020, we filed a provisional patent application for THIO in sequential combination with checkpoint inhibitors, covering all tumor types. The patent was allowed in the US in the First Quarter 2021 and expires in 2041. • In the First Quarter 2021, we entered into a Drug Supply Agreement with Regeneron Pharmaceuticals, Inc. Under this agreement, Regeneron will provide cemiplimab (LIBTAYO; anti-PD-1 checkpoint inhibitor) at no charge for the THIO-101 trials, testing THIO administration for immune activation followed by cemiplimab in NSCLC. This drug supply agreement replaces direct drug purchase expense that we would be otherwise required to incur. In exchange, Regeneron received development exclusivity in NSCLC for the duration of the trial which is expected to be two years, meaning we cannot conduct trials in NSCLC with another checkpoint inhibitor during the time of the trial. All other areas of study and development in any other tumor types remain open. • In the First Quarter 2021, we initiated our clinical supply manufacturing (CMC) under Good Manufacturing Practices (GMP) conditions to provide clinical supply for THIO-101 and other development needs. • In the Second Quarter 2021, we completed a convertible note funding round in the amount of approximately$8 million . • In the Third Quarter 2021 and Fourth Quarter 2021, we sold common shares of MAIA for total proceeds of approximately$6.2 million . • In the First Quarter 2022, we completed the Crossover Round for total proceeds of approximately$2.4 million . • In the First Quarter 2022, THIO received approval by theBellberry Human Research Ethics Committee (HREC) inAustralia to initiate the THIO-101 Phase 2 clinical study. • InMarch 2022 , theU.S. Food and Drug Administration (FDA) granted Orphan Drug Designation (ODD) to THIO for the treatment of hepatocellular carcinoma, and inMay 2022 , the FDA granted ODD to THIO 22
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for the treatment of small-cell lung cancer.The FDA's Office of Orphan Products Development may grant orphan designation status to drugs and biologics that are intended for the treatment, diagnosis or prevention of rare diseases, or conditions that affect fewer than 200,000 people in theU.S. Orphan Drug Designation provides certain benefits, including financial incentives, to support clinical development and the potential for up to seven years of market exclusivity for the drug for the designated orphan indication in theU.S. if the drug is ultimately approved for its designated indication. • InMay 2022 , we completed the Additional Round for total proceeds of approximately$99,999 . • InMay 2022 , we entered into a research and collaboration agreement with theNationwide Children's Hospital to evaluate the potential of THIO in combination with current standard-of-care therapies for brain cancer. The organizations will conduct preclinical studies to assess the efficacy and safety of THIO in combination with radiotherapy and immune checkpoint inhibitors in vitro and in vivo models. • InJuly 2022 , we completed our selection process for the clinical sites for our Phase 2 study inAustralia andEurope and our application to start the Phase 2 study inAustralia has been approved. InJuly 2022 , the first patient was administered with THIO in our Phase 2 human trial (THIO-101) inAustralia . We have also submitted a similar application to conduct the same Phase 2 study inEurope . • OnJuly 28, 2022 , the Company's shares of common stock began trading on the NYSE American under the symbol MAIA. OnAugust 1, 2022 , the Company sold 2,000,000 shares of common stock at$5.00 per share for net proceeds of$10,000,000 in an initial public offering prior to deducting underwriting discounts, commissions, and other offering expenses. OnAugust 3, 2022 , the Company sold an additional 300,000 shares of common stock at$5.00 per share when the underwriter exercised the overallotment for net proceeds of$1,500,000 prior to deducting underwriting discounts, commissions, and other offering expenses. We believe we have raised sufficient capital to fund the THIO-101 lead-in and preliminary efficacy of the phase 2 THIO-101 trial.
Impact of the COVID-19 Pandemic on Our Operations
On
health emergency because of a new strain of coronavirus originating in
China
the virus spreads globally beyond its point of origin. In
classified the COVID-19 Outbreak as a pandemic, based on the rapid increase in
exposure globally.
The full impact of the COVID-19 Outbreak continues to evolve as of the date of
this report. As a result, we cannot estimate the full magnitude that the
pandemic will have on our business. If the COVID-19 Outbreak continues, it may
have a material adverse effect on our financial condition, liquidity, and future
results of operations for the future. We are actively monitoring the impact of
the global pandemic on our financial condition, liquidity, operations, industry,
and workforce. Given the daily evolution of the COVID-19 Outbreak and the global
responses to curb its spread, we are not able to estimate the effects of the
COVID-19 Outbreak on our results of operations, financial condition, or
liquidity for the future. One of our initial clinical studies is taking place in
measures, including lock-downs. While are not currently experiencing any delays
or increased costs as a result of these measures, we may do so in the future.
Impact of the War in
The short and long-term implications of
difficult to predict at this time. The imposition of sanctions and counter
sanctions may have an adverse effect on the economic markets generally and could
impact our business, financial condition, and results of operations. Because of
the highly uncertain and dynamic nature of these events, the Company terminated
any planned research activities in
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Financial Operations Overview and Analysis for the Three Months Ended
30, 2022
Comparison of the three months ended
Three Months Ended
September 30,
Change
2022
(As Restated) 2021 Dollars Percentage
Operating expenses:
Research and development
expenses $ 2,343,154 $ 1,081,705 $ 1,261,449 117%
General and
administrative
expenses 1,653,072 1,151,542 501,530 44%
Ratchet share expense 1,099,360 - $ 1,099,360 100%
Total operating costs and
expenses 5,095,586 2,233,247 2,862,339 128%
Loss from operations (5,095,586 ) (2,233,247 ) (2,862,339 ) 128%
Other income (expense):
Interest expense (1,716 ) (451,306 ) 449,590 (100)%
Interest income 348 708 (360 ) (51)%
Australian research and
development incentives 65,111 - 65,111 100%
Change in fair value of
embedded
features - (96,000 ) 96,000 (100)%
Change in fair value of
warrant
liability 128,030 (100,780 ) 228,810 (227)%
Loss on extinguishment of
convertible notes and
convertible
notes, related parties - (2,322,943 ) 2,322,943 (100)%
Other income (expense),
net 191,773 (2,970,321 ) 3,162,094 (106)%
Net loss (4,903,813 ) (5,203,568 ) 299,755 (6)%
Net loss attributable to
noncontrolling
interests - (7,130 ) 7,130 (100)%
Net loss attributable to
MAIA
Biotechnology, Inc.
shareholders $ (4,903,813 ) $ (5,196,438 ) $ 292,625 (6)%
Operating Expenses
Research and development expenses
Research and development expenses increased by approximately
from approximately
approximately
increase was primarily related to the increase in clinical expenses related to
the clinical preparation and startup of THIO 101 trial of approximately
related to increased headcount of additional research and development employees,
an increase of approximately
offset by a decrease in stock-based compensation costs of approximately
General and administrative expenses
General and administrative expenses increased by approximately
from approximately
approximately
increase was primarily related to an increase in payroll expense of
approximately
related to the costs of operating as a public company, offset by a decrease in
stock-based compensation of approximately
approximately
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Ratchet Expense
Ratchet expense increased by approximately
months ended
investors.
Other expense, net
Other expense, net decreased by approximately
expense of approximately
2021
result of the following expenses in the three months ended
approximately
convertible notes, approximately
convertible notes, the change in the fair value of warrant liability expense of
approximately
feature, and by the increase of approximately
Australian research and development incentives, and remeasurement of the warrant
liability of
offset by approximately net
Comparison of nine months ended
Nine Months Ended
September 30,
Change
2022
(As Restated) 2021 Dollars Percentage
Operating expenses:
Research and development
expenses $ 6,539,948 $ 1,988,450 $ 4,551,498 229%
General and
administrative
expenses 4,341,880 2,798,766 1,543,114 55%
Ratchet share expense 1,099,360 - $ 1,099,360 100%
Total operating costs and
expenses 11,981,188 4,787,216 7,193,972 150%
Loss from operations (11,981,188 ) (4,787,216 ) (7,193,972 ) 150%
Other income (expense):
Interest expense (1,820 ) (827,539 ) 825,719 (100)%
Interest income 1,249 1,501 (252 ) (17)%
Australian research and
development incentives 230,188 - 230,188 100%
Change in fair value of
embedded
features - (203,000 ) 203,000 (100)%
Change in fair value of
warrant
liability 128,030 (1,546,280 ) 1,674,310 (108)%
Loss on extinguishment of
convertible notes and
convertible
notes, related parties - (2,322,943 ) 2,322,943 (100)%
Other income (expense),
net 357,647 (4,898,261 ) 5,255,908 (107)%
Net loss (11,623,541 ) (9,685,477 ) (1,938,064 ) 20%
Net loss attributable to
noncontrolling
interests - (74,331 ) 74,331 (100)%
Deemed dividend on
warrant
modifications (450,578 ) - (450,578 ) 100%
Net loss attributable to
MAIA
Biotechnology, Inc.
shareholders $ (12,074,119 ) $ (9,611,146 ) $ (2,462,973 ) 26%
-
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Operating Expenses
Research and development expenses
Research and development expenses increased by approximately
from approximately
approximately
increase was primarily related to an increase in clinical expenses of
approximately
organizations and payments to consultants primarily related to the THIO 101
trial start-up and pre-clinical activities, an increase in payroll related
expenses and bonus expense of approximately
headcount of eight research and development employees during the nine months
ended
fees, and an increase in other expenses of approximately
decrease in stock-based compensation of approximately
General and administrative expenses
General and administrative expenses increased by approximately
from approximately
approximately
increase was primarily attributable to the increased costs to create additional
infrastructure to support our operations as a public company. Increases included
an increase in payroll, bonus expenses and benefits of approximately
related to an increase in headcount over the same period last year, an increase
in professional fees for approximately
expenses of approximately
compensation expense of approximately
related to founders’ stock-based compensation expense.
Ratchet Expense
Ratchet expense increased by approximately
months ended
investors.
Other expense, net
Other income expense, decreased by approximately
approximately
30, 2021
approximately
convertible notes, the approximately
fair value of the warrant liability, the change in the fair value of bifurcated
embedded feature of
related to interest for convertible notes for the nine months ended
30, 2021
the Australian research and development incentives, increased by
the remeasurement of the warrant liability and offset by approximately
interest expense for nine months ended
Liquidity and Capital Resources
As of
represented an increase of approximately
2021
incur operating losses for the foreseeable future and may never become
profitable. We are dependent on our ability to continue to raise equity and/or
debt financing to continue operations, until the attainment of profitable
operations.
Between
resulting in the issuance of 153,000 shares of common stock for proceeds of
approximately
On
share for gross proceeds of
2022
gross proceeds of
the Company sold an
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additional 300,000 shares of common stock at
We will need to raise additional capital to fund our operations, to develop and
commercialize THIO, and to develop, acquire or in-license other products. We may
seek to fund our operations through additional public equity, or debt
financings, as well as other sources. We cannot make any assurances that
additional financings will be available to us and, if available, on acceptable
terms or at all. We believe that we currently have sufficient funds to support
funding of the THIO-101 lead-in and preliminary efficacy of the phase 2 THIO-101
through the next 12 months from the date of this filing. If the Company is
unable to raise the necessary funding, management will undertake cost cutting
measures to reduce compensation and reduce the scope of or delay its clinical
programs. This could negatively impact the Company’s business and could also
lead to the reduction of the Company’s operations.
Cash Flows
Cash Flows nine months ended
Nine Months Ended
September 30,
2022 2021
Net cash flows used in operating activities $ (9,146,390 ) $ (2,515,658 )
Net cash flows provided by financing activities 12,670,074 12,804,705
Effect of foreign currency exchange rate changes on cash (34,334 ) -
Net increase in cash and cash equivalents $ 3,489,350 $ 10,289,047
Operating Activities
For the nine months ended
activities was approximately
loss of approximately
of approximately
of approximately
of approximately
prepaid expense and other assets, and an approximate
of approximately
For the nine months ended
activities was approximately
approximately
which primarily includes approximately
change in fair value of embedded features,
discount on convertible notes, a changes in the fair value of the warrant
liability of approximately
settlement of bonus. Total changes in operating assets and liabilities of
approximately
in accrued expenses, an approximate increase of
an approximate increase in accrued interest of
approximate increase in prepaid expenses and other assets of
approximate decrease in amounts due to related parties of
For the nine months ended
exchange rate changes on cash decreased the cash balance as of
2022
Financing Activities
Net cash provided by financing activities was approximately
Net cash provided by financing activities for the nine months ended
30, 2022
the initial public offering of approximately
issuance of common stock of approximately of
and proceeds from issuance of common stock upon exercise of warrants of
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approximately
approximately
months ended
convertible notes totaling approximately
common stock net of transactions costs totaling approximately
collections of subscriptions receivable of approximately
the paycheck protection program loan totaling approximately
proceeds from exercise of stock options of approximately
Critical Accounting Policies and Significant Judgments and Estimates
Management’s discussion and analysis of our financial condition and results of
our operations is based on our consolidated financial statements, which have
been prepared in accordance with
statements requires us to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. The most
significant estimates in the Company’s financial statements relate to the
valuation of common stock, stock options and warrants, the embedded features in
convertible notes, accruals for outsourced research and development activities,
and the valuation allowance of deferred tax assets. These estimates and
assumptions are based on current facts, historical experience and various other
factors believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities and the recording of expenses that are not readily apparent from
other sources. Actual results may differ materially and adversely from these
estimates. To the extent there are material differences between the estimates
and actual results, the Company’s future results of operations will be affected.
We define our critical accounting policies as those accounting principles that
require it to make subjective estimates and judgments about matters that are
uncertain and are likely to have a material impact on our financial condition
and results of operations, as well as the specific manner in which we apply
those principles. While our significant accounting policies are more fully
described in Note 1 to our financial statements, we believe the following are
the critical accounting policies used in the preparation of its financial
statements that require significant estimates and judgments.
Fair value of common stock
For all periods prior to the initial public offering, there was no public market
for our common stock. The Company sold shares of its common stock to third
parties beginning in
Subsequent to
our stock-based awards was estimated by our board of directors based in part on
valuations until we began selling shares of our common stock to third parties
beginning on
beginning on
determine the fair value of our common stock underlying annual option grants to
officers and directors, our board of directors considered, among other things,
input from management, valuations of our common stock valuation firms in
accordance with the guidance provided by the
Public Accountants
Securities Issued as Compensation, and our board of directors’ assessment of
additional objective and subjective factors that it believed were relevant, and
factors that may have changed from the date of the most recent valuation through
the date of the grant.
These factors included, but were not limited to:
•
our results of operations and financial position, including our levels of available capital resources; • our stage of development and material risks related to our business; • our business conditions and projections; • the valuation of publicly traded companies in the life sciences industry sectors, as well as recently completed mergers and acquisitions of peer companies; • the lack of marketability of our common stock as a private company; • the likelihood of achieving a liquidity event for our security holders, such as an initial public offering or a sale of our company, given prevailing market conditions; • the hiring of key personnel and the experience and expertise of management; • trends and developments in our industry; and • external market conditions affecting the life sciences industry sectors.
Our valuation as of
of
the period
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the exercise prices for those awards based on the
until the Company initiated the sale of common stock at
was first competed on
In evaluating the fair value of our common stock during the period
through
estimated fair value per share of the common stock. We considered events during
this period which would have an effect on the fair value of our common stock
such as milestones related to the clinical development and operations of our
drug substances and advances in the production of drug substances and our drug
product, however, there were no specific events that would indicate a definitive
change in the value of the Company.
Given that there were no specific events that caused the change in fair value of
our common stock from the indicated value of
the
July, we performed a retrospective valuation of our common stock as of
2021
value of our common stock of
stock option awards, we used an estimated fair value of
from
an estimated of fair value of our common stock of
stock option awards. We believe the fair values based on the valuations
materially represents the fair value of our common stock during the period
event indicated a definitive change in the value of the Company.
The
and the market approach in estimating the fair value of our common stock. The
market approach utilized guideline public companies in estimating fair value of
our stock. The income approach estimates enterprise value based on the estimated
present value of future cash flows the business is expected to generate over its
remaining life. The estimated present value is calculated using a discount rate
reflective of the risks associated with an investment in a similar company in a
similar industry or having a similar history of revenue growth. The market
approach measures the value of a business through an analysis of recent sales or
offerings of comparable investments or assets, and in our case, focused on
comparing us to a group of our peer companies. In applying this method,
valuation multiples are derived from historical and projected operating data of
the peer company group. We then apply the selected multiples to our operating
data to arrive at a range of indicated enterprise values of the Company. We then
subtracted the net debt to determine equity value.
During
stock was determined to be
common stock performed
of the Option Pricing Method (“OPM”) and the Probability-Weighted Expected
Return Method (“PWERM”). PWERM considers various potential liquidity outcomes.
Our approach included the use of an initial public offering scenario, a scenario
assuming continued operation as a private entity, and a dissolution scenario.
Under the hybrid OPM and PWERM, the per share value calculated under the OPM and
PWERM are weighted based on expected exit outcomes and the quality of the
information specific to each allocation methodology to arrive at a final
estimated fair value per share of the common stock before a discount for lack of
marketability is applied.
In the First Quarter of 2022, the Company made further progress in its clinical
programs, which included the approval of THIO by the
Ethics Committee
study. Additionally, the Company completed its selection process for the
clinical sites for its Phase 2 study in
to start the Phase 2 study in
a similar application in the second quarter of 2022, to conduct the same Phase 2
study in
The events above resulted in the Company being able to complete sales of its
common stock to unrelated third-party investors beginning in
through
per share resulting in aggregate proceeds of approximately
2022
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completed additional sales of its common stock at a price of
resulting in aggregate proceeds of approximately
of any single specific event that would have indicated a definitive change in
the value of the Company, the fair value of the Company’s common stock from
Company’s shares at arm’s length to unrelated third parties at
The fair value for common stock for
per share for common stock initial public offering price.
Following the initial public offering, the fair value of our common stock, is
based on the closing price of the common stock in the public market.
Stock-based compensation
Our stock-based awards are classified as equity (restricted stock awards, stock
options, and warrants). We recognize related stock-based compensation expense
based on the grant date fair value of the awards. The fair value of restricted
stock awards is based on our common stock price. We estimate the fair value of
stock options and warrants using the Black-Scholes-Merton valuation model which
requires the use of subjective assumptions that could materially impact the
estimation of fair value and related compensation expense to be recognized. One
of these assumptions include the expected volatility of our stock price.
Developing this assumption requires the use of judgment. The Company lacks
company-specific historical and implied volatility information. Therefore, we
estimate our expected stock volatility based on the historical volatility of a
publicly traded set of peer companies. These estimates are highly subjective and
now that the initial public offering is completed these estimates will no longer
be necessary since the fair value will be based on the trading value of the
Company’s common stock.
Two of the assumptions used in the Black-Scholes-Merton valuation model are
historical volatility and fair value of common stock, both of which are subject
to uncertainty. Historical volatility is subject to uncertainty due to changes
in the market over time. The fair value of our common stock is subject to
uncertainty due to the possibility of changes in the results of our clinical
trials, which could impact the fair value of our common stock. The total expense
related to stock options is material to our financial statements on an annual
basis, and significant fluctuations in the volatility assumption or the fair
value of our common stock could result in material changes in related
compensation expense to be recognized.
As part of the process of preparing our consolidated financial statements, we
are required to estimate our prepaid and accrued research and development
expenses. This process involves reviewing open contracts and purchase orders,
communicating with our personnel to identify services that have been performed
on our behalf and estimating the level of service performed and the associated
cost incurred for the service when we have not yet been invoiced or otherwise
notified of the actual cost. We make estimates of our prepaid and accrued
research and development expenses as of each balance sheet date in our financial
statements based on facts and circumstances known to us at the time. We confirm
the accuracy of estimates with the service providers and make adjustments if
necessary. Examples of estimated prepaid and accrued research and development
expenses include expenses for:
•
Clinical Research Organizations (CROs) in connection with clinical studies;
•
Investigative sites in connection with clinical studies;
•
Vendors in connection with preclinical development activities; and
•
Vendors related to product manufacturing, development and distribution of
clinical materials.
We base our expenses related to clinical studies on our estimates of the
services received and efforts expended pursuant to contracts with multiple CROs
that conduct and manage clinical studies on our behalf. The financial terms of
these agreements are subject to negotiation, vary from contract to contract and
may result in uneven payment flows. The scope of services under these contracts
can be modified and some of the agreements may be canceled by either party upon
written notice. There may be instances in which payments made to our vendors
will exceed the level of services provided and result in a prepayment of the
clinical expense. Payments under some of these contracts depend on factors such
as the successful enrollment of subjects and the completion of clinical study
milestones. In accruing service fees, we estimate the time period over which
services will be performed and the level
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of effort to be expended in each period. If the actual timing of the performance
of services or the level of effort varies from our estimate, we adjust the
accrual or prepaid accordingly. Although we do not expect our estimates to be
materially different from amounts actually incurred, if our estimates of the
status and timing of services performed differ from the actual status and timing
of services performed we may report amounts that are too high or too low in any
particular period. To date, there have been no material differences between our
estimates and the amount actually incurred.
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